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Sterling hits low due to high government borrowing figures

Published:  22 December, 2010

Sterling hit a three month low against the US dollar yesterday as public borrowing figures came in far worse than expected.

Sterling hit a three month low against the US dollar yesterday as public borrowing figures came in far worse than expected.

Currency daily rates


EURO/GBP - 1.1771

US$/GBP - 1.5466
- 1.4753
- 1.5695
- 1.5501
- 10.5170
- 129.43
- 12.0283
- 2.0801
- 10.5522
- 1.3137

HUF/GBP - 324.552

It called into question whether the government can meet its deficit cutting target. Net borrowing by the government was at a record £22.8bn for November - up on last year's £16.7bn and way above forecasts of £17bn. The Treasury maintained that the UK was on track to eliminate the budget deficit over the next four years, but sterling dropped to $1.5450/£1 - the lowest since September - as traders and investors questioned whether the government would achieve this target. Out today, we have the Bank of England's meeting minutes and final GDP figures. Given the woeful borrowing figures, any changes to the Bank's rhetoric could see some serious movement.

In the eurozone, despite an initial surge against the US dollar after positive comments from China saw traders move to minimise losses, the euro fell against the US dollar yesterday as debt crisis concerns persisted. Credit rating agency Moody's warned that it may downgrade debt-stricken Portugal's rating in a review that could take 3 months. Spain sold nearly €4bn of bonds without too much hassle, but the dark cloud of the debt crisis is hanging over the region and is likely to last well into next year. Unfortunately, given the exposure of many UK banks this will not have the positive impact on the sterling/ euro price that many would expect so make sure you assess next year's budgeted exchange rates sooner rather than later.

In the USA, the US dollar faltered slightly against the euro after the Chinese Vice Premier stated that China had invested a large portion of its foreign currency reserves in euros and a turning point for the euro was near. However, risk aversion soon took over and with concerns over the European debt crisis; UK borrowing data; and many looking for safe currencies for the festive period - the US dollar strengthened. In terms of data, there is some housing data released today which will be followed closely.

Elsewhere, the Australian dollar is currently trading at a 25 year high against sterling so if you are moving Aussie dollars into sterling, now is a great time to look at securing rates for the New Year and minimising losses for 2011.

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